Insurance companies, pension funds to bring on ‘age of sustainability’ in Asia: analyst

Tapping into the region’s vast savings is required to reach this new age.

Insurance companies, pension funds, and other institutional investors must tap into Asia’s vast savings to reach an "age of sustainability", according to a principal financial sector specialist at the Asian Development Bank, Arup Kumar Chatterjee.

Chatterjee said that the recent global public health crisis has revealed that economies can no longer afford to return to old ways of doing things. However, he added that there could be a silver lining in a coming "age of sustainability" in Asia and the Pacific that can get countries growing strongly again.

According to Chatterjee, reaching the "age of sustainability" for the region will require greater use of insurance companies, pension funds, and other institutional investors to tap the region's well-known and huge pool of savings. 

He said that Asia's savings rate is very high, at about 27.11% of gross domestic product, ranging from 40.24% in Singapore, 30.20% in India, and 24.86% in the Philippines, to 14.23% in Georgia.

“It calls for a more diverse range of infrastructure investments that meet environmental, social, and governance goals; and it needs measures that can allow corporations and households to invest more widely,” Chatterjee said.

For now, Chatterjee saw that high public debt, rising domestic spending, and adverse exchange and interest rates are constraining fiscal space. He added that the governments' inability to implement countercyclical fiscal policy to respond and mitigate the adverse effects of external shocks by increasing expenditure or reducing taxes to create a demand worsens these constraints.

Chatterjee observed that Several factors contribute to high untapped savings in Asia, both amongst households and corporates.

“Social insurance schemes such as unemployment and health insurance or sovereign insurance schemes for natural catastrophes are absent or underdeveloped. In the absence of these automatic stabilizers to offset fluctuations in economic activity after an economic shock, many developing countries cannot borrow or can do so only at very high-interest rates. Since they cannot run deficits, they resort to procyclical fiscal policy by imposing cuts in public spending, and this is potentially damaging for economic welfare,” he said.

Furthermore, Chatterjee said as economies in transition become market-oriented, reducing the state's role, more people are working in their homes and uncertain about their future income. 

“Especially, the increasing prominence of the gig economy poses a challenge to the paradigm of standard employment. Existing social insurance, like unemployment coverage, offers little support, as it is not designed to cushion short-term income fluctuations,” Chatterjee wrote.

Chatterjee said that change is coming to Asia and the Pacific and we need to look to insurance companies, pension funds, and other institutional investors to access the region’s huge pool of savings for a resilient and sustainable future.